An investment advisor is presenting the ten-year performance of a client's Registered Retirement Savings Plan (RRSP) to demonstrate long-term growth. The client made several contributions and withdrawals over the decade. To accurately reflect the compound rate of growth of the portfolio itself, independent of the size and timing of these cash flows, which performance metric should the advisor primarily use?

Question: An investment advisor is presenting the ten-year performance of a client's Registered Retirement Savings Plan (RRSP) to demonstrate long-term growth. The client made several contributions and withdrawals over the decade. To accurately reflect the compound rate of growth of the portfolio itself, independent of the size and timing of these cash flows, which performance metric should the advisor primarily use?

Answer options:

• Money-Weighted Rate of Return (MWRR) ✅ Time-Weighted Rate of Return (TWRR)
• Internal Rate of Return (IRR)
• Dividend Yield

Correct answer: Time-Weighted Rate of Return (TWRR)

Explanation: The Time-Weighted Rate of Return (TWRR) removes the distortions caused by external cash flows (contributions and withdrawals), providing a pure measure of the investment manager's performance. It is the preferred method for comparing investment managers. MWRR (or IRR) is sensitive to cash flows and is more appropriate for measuring the investor's return.